IRDAI chairman Ajay Seth has said proposed reforms to the economics of insurance distribution are aimed at reducing costs, improving transparency and making insurance more accessible to customers.
His comments come days after the Insurance Regulatory and Development Authority of India (IRDAI) released a two-part consultation paper proposing changes to the way insurance distribution is structured and compensated.
According to Seth, the proposed reforms are intended to address inefficiencies in the distribution system while supporting greater digitalisation and creating a more sustainable business model for insurers, distributors and policyholders.
He said the changes could eventually translate into lower insurance premiums and greater transparency for customers, although the proposals are still at the consultation stage.
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Add INDYASTORY on GoogleIRDAI Wants to Reduce Insurance Distribution Costs
A key focus of the proposed reforms is the cost of distributing insurance products.
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Seth said the regulator is looking at ways to bring down distribution costs and improve the overall economics of insurance. He also pointed to significant differences in the cost structures of individual insurers and distributors.
According to Seth, SBI Life’s cost of doing business is around 11%, compared with an industry level of about 22%.
He also highlighted differences among banks in the contribution of insurance sales to their income. While insurance-related income accounts for around 2–4% of income for some banks, Seth said the proportion exceeds 8–10% for others.
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The comments underline IRDAI’s focus on examining whether distribution economics are proportionate to the value being created for customers.
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Add INDYASTORY on GoogleIRDAI Chairman on Insurance Commissions
Seth also raised concerns about the relationship between premiums generated and commissions earned by some distributors.
He said that in certain cases, first-year commissions can exceed 40–50% of the premium.
The chairman suggested that the market is increasingly distinguishing between businesses with more sustainable economics and those that may be more dependent on distribution-related income.
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Add INDYASTORY on GoogleHis comments come as investors and listed insurance-related companies assess the potential impact of IRDAI’s consultation proposals.
Stock Market Reaction to IRDAI’s Proposed Reforms
Several listed insurers and insurance distributors have experienced sharp movements in their market valuations following the release of the consultation paper.
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Asked about the market reaction, Seth said the stock market was differentiating between companies based on their business models.
He cited SBI Life as an example of an insurer with a lower cost of doing business and contrasted this with the higher industry-wide figure.
Seth also said some distributors have seen premiums increase by a certain percentage while their commissions have increased by a multiple of that growth.
His broader argument was that information about business economics allows investors to distinguish between companies based on their underlying models.
Importantly, these are Seth’s observations about market behaviour and business models, rather than an IRDAI assessment that any particular listed company is financially weak or strong.
Proposed Changes Could Affect Insurers and Distributors
The consultation papers could have implications across India’s insurance distribution ecosystem.
Potential areas of impact include:
- Distribution costs
- Commission structures
- Insurance pricing
- Distributor incentives
- Market conduct
- Transparency
- Digital distribution
- Insurer and intermediary economics
The regulator’s stated objective is to improve efficiency without undermining the ability of insurers and distributors to reach customers.
For insurers and intermediaries, changes to distribution economics could require adjustments to existing business models if the proposals are eventually adopted in their final form.
IRDAI Seeks Greater Efficiency and Digitalisation
Seth said the reforms are also intended to accelerate digitalisation across the insurance sector.
Greater use of digital processes could potentially reduce administrative and distribution expenses while making insurance products easier for customers to access and compare.
The regulator is also looking at how the insurance ecosystem can become more sustainable for all stakeholders, including insurers, distributors and policyholders.
However, the final impact will depend on the provisions ultimately adopted after the consultation process.
Hospitals and Insurers Also in Focus
Seth said IRDAI has been working to improve dialogue between hospitals and insurers.
According to the chairman, the regulator has spent the past six months working through industry forums involving both hospitals and insurance companies.
The objective is to improve coordination between the two sides, an important issue for customers because hospitals and insurers play a central role in the health-insurance claims process.
Better communication between hospitals and insurers could help address operational issues surrounding claims and healthcare payments, although the consultation on insurance distribution is a broader exercise covering the economics of the sector.
What the Insurance Reforms Could Mean for Customers
If the proposed measures eventually lead to lower distribution costs, part of the efficiency gains could potentially benefit policyholders.
The regulator has indicated that its objectives include:
Lower costs: Reducing inefficiencies in insurance distribution.
Greater transparency: Making the economics and pricing of insurance easier for customers to understand.
Wider access: Expanding insurance availability to a larger section of the population.
Digitalisation: Increasing the use of digital channels and processes.
Sustainable distribution: Creating an economic structure that works for insurers, distributors and policyholders.
These are the objectives of the proposed reforms; they should not be interpreted as a guarantee that insurance premiums will immediately fall.
Why the Consultation Paper Matters
Insurance distribution is a critical part of India’s financial-services ecosystem. Agents, banks, brokers, corporate agents and other intermediaries play a major role in bringing insurance products to customers.
The economics of distribution therefore influence how products are sold, what incentives distributors receive and how much insurers spend on acquiring customers.
IRDAI’s consultation exercise is aimed at reassessing these relationships and making the sector more efficient.
The next stage will depend on stakeholder feedback and the regulator’s final decisions.
Key Takeaways
| Issue | What IRDAI Chairman Ajay Seth Said |
|---|---|
| Main objective | Reduce distribution costs and expand insurance access |
| Customer impact | Potentially lower premiums and greater transparency |
| Digitalisation | Proposed reforms seek to accelerate digital adoption |
| Distribution economics | IRDAI is examining costs and commissions |
| Commissions | Seth said first-year commissions exceed 40–50% in some cases |
| SBI Life example | Seth cited cost of doing business at about 11% |
| Industry comparison | Seth cited an industry cost figure of about 22% |
| Hospitals & insurers | IRDAI has been working to improve dialogue between both sides |
| Current status | Consultation proposals; final rules are yet to be determined |
What Happens Next?
The consultation papers do not by themselves constitute final regulations. Stakeholders will have an opportunity to provide feedback before IRDAI decides what changes, if any, will be implemented.
For policyholders, insurers and distributors, the final rules will be important in determining how the proposed changes affect premiums, commissions, distribution channels and operating costs.
Source: IRDAI consultation proposals and comments by IRDAI Chairman Ajay Seth, as reported in the interview.
